Recently I received a call from someone who had found two tax liens on his credit reports, both more than ten years old. He had never reviewed his credit reports before and was surprised to see these items show up since he had been able to obtain mortgages and other loans without a problem.
Although he was confident he had taken care of the liens years ago, the caller wasn't sure he still had his records to prove it. Looking for help to clean up his credit report, he called me. I don't do "credit repair," but I did try to point him in the right direction by sending him to IRS publication 594: The IRS Collection Process.
After we talked, his question continued to nag at me and I decided to investigate further. I wanted the straight scoop on how difficult it would be for him to get those tax liens off his credit reports, and whether there were things he should watch out for.
I remembered a seminar I had attended with Tampa tax attorney and IRS problem solver Darren T. Misch. Darren was an excellent speaker, and I knew the time would come when I would want to tap into his expertise. This was my opportunity.
Here are the questions I asked Darrin about resolving tax liens and getting tax liens off credit reports, followed by his answers:
1. When you pay or settle a tax debt, how long does it take the IRS to release the lien? What is the procedure for doing so?
The statute says that they have 30 days to release the tax lien. See Internal Revenue Code 6325. That's how it's supposed to work, but in reality they often overlook it and it doesn't get done. If this happens then a taxpayer can contact the Lien Desk by phone at (800) 913-6050 or by fax at (859) 669-3805. If you look at a copy of an actual Form 668(Y)(c) Notice of Federal Tax Lien you will notice a bold black box about halfway down the page on the left hand side. It says that if the lien is not refiled by the refile date in column (e) then the lien is releasable on its face. That sounds complicated, but what it means is that if another lien wasn't filed before the dates in column (e) then the lien is no longer enforceable. This sometimes complicates matters because the IRS is often reluctant to issue a release for an expired lien.
2. Does the IRS automatically notify the credit agencies that the lien has been released? If not, what do consumers need to do to make sure their credit files are updated?
When the Certificate of Release gets filed in the courthouse where the lien was originally filed, theoretically the credit reporting agencies should pick up the release. A much better practice would be to order three official copies of the release and proactively send them into the three credit bureaus. It could take months or years for them to be automatically picked up by the bureaus.
3. What if you find a tax lien on your credit reports and don't recognize it as yours? How do you research it to find out if it is valid?
This is a much trickier question. What you would need to do is research the public records offices of every county that you have lived in since the issuance of the Federal Tax Lien. The official name for this records office varies by state. In Florida it is called the Official Records of the Clerk of Circuit Court. In California it's called the Office of the Recorder. Some states have most, if not all, of these records online while others have none of them online.
4. What if you find an old tax lien on your credit report and aren't sure you paid it? What is the procedure for investigating it with the IRS?
You can call the IRS to inquire, but this can sometimes exacerbate a problem that has long been dormant. The best way by far to investigate such a situation is to contact a tax professional who is well versed in handling tax controversy cases and have him or her file a Freedom of Information Act request. This is very discreet way to inquire without setting the IRS Collection machine loose on a taxpayer.
5. What if you find an old tax lien on your credit file, believe you paid it, but don't have records anymore? What is the procedure for investigating it with the IRS?
Similar answer to Question 4. You will ultimately have to check with the IRS to see if the liability has been paid. It's important to note that there is a 10-year statute of limitations for the collection of the tax. The ten-year clock begins to run from the assessment of the tax and there are many exceptions to this rule and circumstances that can cause the statute time to be extended (sometimes very significantly). This is another situation that is best left to a professional to decipher.
6. How long should you expect the above to take?
Such an analysis should take 60 -90 days. A lien release subsequent to a request: 30-90 days.
7. What can you do to expedite the process if you are in the process of getting a mortgage, for example?
You could contact the Office of the Taxpayer Advocate for your local area. See the IRS website at www.irs.gov for the phone number for your local area. The Taxpayer Advocate is an independent branch of the IRS whose job it is to fix bureaucratic snarls and delays. There is no charge for their services. Using the Taxpayer Advocate can be very advantageous, especially from the point of view that you get one person to help you instead of speaking to anyone who answers the phone.
8. Are there any tips you would offer for consumers who find tax liens on their credit files?
Be very cautious about contacting the IRS about tax liens that may pop up. You can wake the sleeping giant and really turn your financial life into a living hell. It's best to get professional help unless you are sure that you have paid off the lien and it's just a matter of getting a release to clear up that issue.
There are a couple more things I want to point out. According to the Fair Credit Reporting Act, they can stay on your credit report for seven years from the date they are satisfied or paid. However, a few years ago the IRS developed its Fresh Start initiative which allows consumers who have paid certain tax liens - or entered into an installment agreement to pay them - to request they be withdrawn and subsequently removed from their credit reports.
And the IRS can file a lien quickly, in as little as ten days after you are notified that you owe taxes. So if you get a notice that you owe Uncle Sam money, resolve it quickly before you end up with serious damage to your credit report! If tax liens have already been filed, resolve them as quickly as you can. You can find a free report on handling IRS problems at GetIRSHelp.com.